Foreclosure
Information

It’s important to know your options and understand all the potential solutions that may be available to help you avoid foreclosure. It’s also important to understand what can happen if you fail to take action and foreclosure becomes unavoidable. The process can be stressful, embarrassing, and it can have long-lasting consequences.

"What happens if my home is foreclosed on?"

Walking away from your home voluntarily, may seem like the best solution when your home is valued lower than what you owe. However, this action may lead to financial consequences in the future. In some states, you may be required to pay a portion of your mortgage debt even after the home has entered foreclosure. Also, the impact to your credit may make it difficult to rent or purchase a home in the future. It may be best to explore other options to foreclosure with your mortgage company before making a decision to leave your home.

Keep in mind, your mortgage company doesn’t want to foreclose on your home. Just like there are consequences for you, the foreclosure process is time-consuming and expensive for them. They want to work with you to resolve the situation. However, some homeowners simply don’t take advantage of the help available and foreclosure becomes the only option.

For example, foreclosure could result in you:

• Owing the mortgage company the deficiency balance of your mortgage (the deficiency balance is the remaining total mortgage balance after the sale price of the home)

• Lengthening the time you could receive a Fannie Mae mortgage to purchase your next home to at least 7 years

Few people who sign a mortgage intend to walk away from it. Still, unforeseen circumstances — huge medical bills, lost jobs, divorce or eroding property values — can overwhelm even the best-intentioned borrower.

Missing a house payment by a few days won’t put you in danger of foreclosure. But if you still haven’t paid by the end of the grace period, if your mortgage lender has sent you past-due notices, or if you’re multiple mortgage payments behind, you need to act quickly to get your mortgage back in good standing.

The fact is, a simple twist of fate can leave you facing a homeowner’s worst nightmare: foreclosure.

Foreclosure rules vary by state, but the most important tip is to be proactive, because procrastination will not make your mortgage problem go away.

The foreclosure spiral begins when your loan payment becomes 16 days overdue. At that point, your mortgage servicer will try to contact you to work out a repayment schedule to bring your loan current.

If your first payment becomes 30 days delinquent and the next month’s payment is not in the mail, collection attempts begin in earnest.

Within 36 days after you miss a mortgage payment, your mortgage servicer should have contacted you directly. It’s important to be proactive about responding to calls or opening any mail from your lender or mortgage company.

Within 45 days, the mortgage servicer will notify you in writing about your delinquent status, and will inform you about your options for avoiding foreclosure.

If your payments fall 120 days behind, the servicer will likely initiate formal foreclosure proceedings. Once that happens, state rules differ on how long you’ll have before the actual foreclosure.

Ask your lender: What are your options for avoiding foreclosure?

Lenders want their money repaid in a timely way and the interest that comes with it; they don’t want your house. If you seem to be a good risk, the lender will offer to help keep your mortgage afloat. But be forewarned: If you seem like a bad risk, the lender may cut its losses by taking steps to foreclose and evict you as quickly as possible.

The key is to communicate with the lender before your debt gets the better of you. The sooner your lender knows of your problem, the more help it can provide.

Federal law requires mortgage servicers to help delinquent borrowers and work with them to get back in good standing. Tell your bank or lender that you want to learn about options for “loss mitigation,” the technical term for avoiding foreclosure.

Also, look for a letter from your lender describing options for avoiding foreclosure, along with instructions and applications for any programs that might apply to you.

Your mortgage servicer should also provide a contact person, who should be available by phone to answer your questions and provide accurate information about your options for avoiding foreclosure. By law, this person should be assigned to you within 45 days after your loan becomes delinquent, according to the Consumer Financial Protection Bureau.

Ways to avoid foreclosure

Here are some options your lender may offer to avoid foreclosure. You may want to seek legal advice before going any of these routes:

Mortgage repayment plan: If you suffer a short-term financial setback (i.e. expensive car repairs, a medical emergency), your lender may provide some breathing room by agreeing to let you pay off your missed payment in two installments over the next two months.

Loan modification: Mortgage servicers can adjust the terms of your loan — most often by lengthening the amortization schedule, lowering the interest rate or rolling the delinquent amount into the loan and re-amortizing the new balance — to help you bring the loan current.

Deed-in-lieu of foreclosure: A deed-in-lieu of foreclosure is when you turn over your home to a lender voluntarily to avoid foreclosure proceedings. In some instances, going this route could help you avoid paying the remaining loan balance on your mortgage but that depends on your lender’s rules and the state you live in. Before you get a deed-in-lieu of foreclosure, ask your lender if they will waive any deficiency, which is the difference between your home’s value and what you still owe on the mortgage. The deed must be free of other liens and the process is similar to doing a short sale.

Short sale: A short sale happens when the lender allows you to sell the house for less than the outstanding loan amount, takes the proceeds and forgives any remaining debt. A real estate agent with experience in short sales may be able to help you find a buyer and guide you through the lengthy process of obtaining the necessary bank approvals.

Short refinance: The lender forgives some of your debt and refinances the rest into a new loan. This type of refi was more common in the aftermath of the mortgage crisis and may not be available for most homeowners now.

Refinance with a “hard money” loan: You won’t like the high rates and fees of a hard money loan — one from a private lender, often an individual — but it may buy you time to sell your home and avoid foreclosure.

Each of these options have details that you need to understand. A foreclosure consultant can help guide you thru the process.